Commercial mortgages are business loans used to purchase or develop property. There are a few types of commercial mortgage finance of which you should be aware.
Purchase premises for your own use
The first type of commercial mortgage is used to purchase property for the use of your own business. This could be your main place of work or a regional location.
Your business is the owner occupier. The mortgage could be for the first-time purchase of the property or a remortgage. Remortgaging could be because you have found a cheaper interest rate, or to release some of the equity invested in the building.
Commercial investment mortgages
The second type of commercial mortgages is for investors. Your business may want to purchase commercial property to rent out. If the property is residential, a buy-to-let commercial mortgage is required. You can also invest in semi-commercial, mixed-use property that has both commercial and residential use. These include shops with flats above them and pubs.
A successful loan application is dependent on a sound business plan that looks at the expected rental values compared to the expenses that include the mortgage repayments.
Unlike standard mortgages, there is no fixed interest rate that is applied to commercial investment mortgages. Each lender assesses your individual investment proposal and fixes an interest rate that is related to the assessed level of risk. It is also possible to have an interest-only commercial investment mortgages.
Another type of commercial mortgage is for the development of property. This includes building new property, comprehensive renovations of property and the conversion of property from residential to commercial or vice versa.
Lenders prefer loan applications from people who are experienced in property development, but will consider novices if they have access to expert advice.
After the property has been developed it may be occupied by the developer, sold on for a profit or rented out.
Like other types of commercial mortgage, interest rates are dependent on the level of risk the lender assess for the project.
The common conditions
There are several common conditions that apply to all commercial mortgages. Security, usually in the form of property is required. A deposit needs to be paid. There will be arrangement, legal and other fees to pay.
A commercial mortgage can be for a period of up to 30 years. Most mortgages are variable interest rate that can go up or down over the lifetime of the mortgages, though it is possible to get a fixed-rate commercial mortgage that lasts a few years.
The interest you pay is dependent on several factors, including the state of your business accounts, your business sector, the value of the loan, the amount of deposit and the length of the loan.
A commercial mortgage broker can find the best interest rates for your individual circumstances. Loans can be arranged for most types of business premises and funds between £100,000 up to £25m and above are available.
For further help, discuss your commercial mortgage requirements with Ascot Mortgages.